It was a year back — on August 28, 2013 — that the rupee hit a record low of 68.8 against the US dollar.
But since then, the rupee has turned out to be the best performer among emerging market currencies, appreciating 14 per cent against the dollar. On Friday, the currency closed at 60.50 against the greenback.
To lift the currency, the Government took several hard measures, including restricting import of gold, cutting down cross-border remittances, and raising interest rates.
But who has gained the most from the stronger rupee? Foreign institutional investors (FIIs), which pumped in money into the Indian market.
Even as the Sensex rallied 48 per cent in the one year since August 28, 2013, BSE Dollex 30, the dollar denominated version of the index, gained 66 per cent.
This shows that for every dollar the FIIs put to work in Indian stocks, they made more than the domestic investors.
Data from the Securities and Exchange Board of India show that the cumulative value of all the equity investments held by the FIIs as of end-August last year stood at $165 billion (₹7.57-lakh crore). Notionally, if this portfolio just kept pace with broad market, the value of this investment today would be ₹12.57-lakh crore.
While FIIs have reason to cheer, Indian investors who bet on dollar-denominated assets are ruing their decision.
Who lost?Mutual funds which invest in international assets (stocks and other assets across the US, Europe and emerging markets) were quite the rage in 2012-13. By end of August last year, these international funds were managing total assets of ₹2,369 crore.
But their returns in the last one year have not just trailed the Indian markets, which managed 48 per cent, but have also lagged the US indices, thanks to the dollar weakening against the rupee. Funds such as JP Morgan US Value Equity Offshore, DSPBR US Flexible Equity and ICICI Pru US Bluechip Equity have given a 11-13 per cent return in the last one year. This is despite the US broad market index, the S&P 500, recording a 22 per cent return. The difference is explained by the currency factor.
Investors in gold also have a tale of woe to relate. International gold prices dropped by 9 per cent in the last one year after 12 straight years of gains.
For Indian investors who parked money in gold a year ago, the rupee’s appreciation in the last one year has magnified these losses. Domestic gold prices have dropped about 16 per cent in the last one year.